Looking forward/looking back on rice markets

In order to figure out where the rice market will go in 2010, “we need to look back and see where we’ve been in 2009,” said Thomas Wynn at the recent 2010 Conservation Systems Cotton and Rice Conference in Tunica, Miss.

A former economic adviser for the U.S. Rice Producers Association and current graduate student at Texas A&M, Wynn said, “Over the last year there have been a lot of changes in the rice industry. Some key points really impacted the market.”

From the supply side, there was “a lot more rice. There was a larger planted area in South America, Asia and the United States. Much of it was due to higher rice prices at the end of 2007.”

There was good yield potential early in 2009. “Weather started out decent. In the South, there were drier conditions but across most regions, the year was promising.”

Global supply and demand needs to be looked at side-by-side, said Wynn. “Demand has traditionally outweighed the ability of the world to supply itself. One question that arises: if there’s so much difference between supply and demand, how come we haven’t run out of rice? The answer is there are two hemispheres of production and the southern usually picks up the slack when the north lets off. That allows us to have rice at the appropriate times. But we must be very careful because we’re reaching a point where that may not always be the case.”

As for global demand, there hasn’t been much change. “There are a lot more people to feed and rice still feeds two-thirds of the world’s population. It’s as simple as that.”

However, there have been some big changes in market fundamentals. Included in that is “the make-up of the import/export market. Some new suppliers come in and old suppliers go out. All that causes disruption that can affect global trade.”

India is a key player, said Wynn. Over the last few months, “headlines have said India needs to import rice. That country has historically been one of the top rice exporters.”

All year long, “the Philippines have been saying they don’t need rice. Then, right at year’s end, they found themselves short and began buying a lot and still are.”

The Iraqi rice market is “anyone’s guess. The politics in that region of the world are very different, to say the least. But we know Iraq is one of the world’s major rice consumers and they buy it from year-to-year. If we can get some continuing business out of Iraq, it would help move things forward for U.S. growers.”

There are also a series of question marks because of “a lot of non-traditional rice buyers that came into the market in 2009. Those may emerge to become major importers of U.S. rice.

“Over the last year, there have been buying pattern changes. In the past, countries would come into the United States and make large purchases to tide them over for a while. They’d consistently come back — you could almost predict when they’d be back in the market. 2009 was a big change with more hand-to-mouth buying. That’s where they’ll buy what they need for a short period of time and come back to the market for another small amount of rice.”

Because of that “the ability to predict sales out for any extended period of time has become very difficult. That’s really impacted the rice industry — not only from a pricing standpoint but from a flow standpoint.”

There has also been a big change in selling patterns. It used to be when a sale was coming up, “everyone knew about it. They knew the tonnage and the prices. There have been a lot more ‘quiet’ deals in the last year. That’s especially true of the Asian sphere with government-to-government, closed bidding processes.”

Much of that stems, said Wynn, “from the price run-up we saw a few years ago. Much of it comes from general political concerns. Rice is a major part of agriculture and GDP and (Asian) governments don’t want their populations to become concerned.

“The net effect of all this is there hasn’t been as much liquidity in the market. It’s been harder to move rice. That’s a really important characteristic of 2009.”

In 2009, the United States had a larger area for both long- and medium-grain crops. “There are some newer medium-grain varieties that were able to be planted in the South. That was constricted due to seed availability, but we did see more medium-grain rice outside California than in the past.”

While there was a larger rice-growing area in the South and Delta, “the harvested area was pretty different. There are a number of reasons for that. There were very dry conditions in the South that allowed us to capture a few more harvested acres. As you moved up the Mississippi River, growers lost more rice acreage due to the wetter growing season.”

Medium-grain varieties “were very attractive in the South. Lots of producers were looking at the prices in California. I think a lot of them still are.”

Wynn then pointed to a weather map showing the deviation from normal rainfall across the United States. “It shows that along the rice-growing region of California as well as along southern Texas and Louisiana, growers experienced a very, very dry (2009). Many growers had to spend extra money irrigating.

“From a production standpoint, that turned out pretty well. By controlling the water there were some very high yields — some places set records.”

However, it’s also worth noting that the states of Arkansas, Mississippi and Missouri “represent the vast majority of the rice produced in the United States. The map shows those states had in excess of 20 inches above normal rainfall. It’s hard to grow and harvest a crop under such conditions.”

Yields in production have tended to trend upwards over the last several years. 2009 was no different.

“We had rather positive yield values due to new varieties, different management techniques and different growing conditions. At the same time, across the Delta, there were yield losses due to lodging and other things. So, while the USDA has recently increased the yield projections, we don’t necessarily think that’s accurate.”

Wynn then produced a graph showing an outlay of 2008 rice exports versus 2009. “While we saw consistent business coming into the market in 2009, we never quite caught up to the same volume as in 2008. There just wasn’t any consistency.”

Domestic consumption has been fairly flat over the last decade. The majority of domestic consumption increases have come from imports — “the specialty rice preferred by the Asian community like basmati and jasmine. When looking at domestic consumption numbers you must be careful to break them out into exactly what they’re comprised of.

“Ending stocks is something many people like to talk about. It’s very tricky. Ending stocks are simply the last point on the balance sheet. But you must remember that the rice industry, as with other commodities, flows through the year. So, just because there’s an ending stock of a set number at year’s end, it doesn’t mean the United States is set to have either a major surplus, or shortage, of rice.”

Even so, “people like to point to it. Based on the more recent projections, ending stocks were expected to be up at the end of 2009. We feel that may be questionable based on the (aforementioned) production issues.”